Heat Networks Regulation

Matthew Pennycook Excerpts

Wednesday 28th November 2018 Westminster Hall

[Janet Daby (Lewisham East) (Lab)]

I beg to move,

That this House has considered regulation of heat networks.

It is a pleasure to serve under your chairmanship, Mr Pritchard. I am pleased to have secured a debate on this issue, which is of great importance to residents of Catford Green in my constituency, as well as those living at three other sites in Lewisham borough and dozens of others across London, the south-east and the south-west.

District heating networks power entire estates by sending hot water and steam via insulated pipes from a central generator, instead of a boiler being installed in each home. There are around 14,000 heat networks in the UK, serving an estimated 450,000 customers and providing around 2% of heat demand in UK buildings. Types of heat network vary widely, from local authority and other not-for-profit schemes to private networks. Their use is increasing more rapidly in London, where developments are required to be carbon neutral.

Such systems, which are often fuelled by natural gas or biomass, could provide part of the answer to a lower carbon domestic energy mix, for which we should continue to strive. However, their potential benefits are completely undermined by fundamental consumer rights issues. Unlike other domestic energy services, these systems are not regulated. As a result, residents pay over the odds for their energy, have few ways to track or control their usage and no opportunity to switch to a cheaper tariff or provider. I am here to address that problem on behalf of my constituents. Regulation for district heating systems must be brought into line with electricity and gas to provide residents with adequate protection.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

I congratulate my hon. Friend on securing this important debate. Like her, I have thousands of constituents locked into those schemes who are paying over the odds and have no means of effective redress. The Competition and Markets Authority recommended in its report in July that the Government regulate this sector by statutory regulation, as my hon. Friend suggests. Does she agree that the Government must act to legislate for that statutory regulation, rather than allow months or even years to roll on while customers are not handed a fair deal?

[Janet Daby]

I agree that the Government need to readdress this issue and make regulations—I will speak about that later.

I was elected to the House in June. One of my first pieces of casework was from a resident representing a group of public and private tenants in a relatively new block of flats that is served by a district heating network. The tenants’ main concern was the unsustainably high cost and wild unpredictability of the bills they received. I understand that those are often up to triple the average.

One constituent told me:

“My hot water bill for July 2018 was £97.07—and this is just hot water”.

He wrote that his bills

“range from £29 to £97 each month. I haven’t used the heating since the spring, as I live on my own and I use hot water sparingly.”

The amount he describes having to pay is very high, given his needs. Because of the communal nature of the supply, there is no real way for residents to monitor their usage, which means they often receive unexpectedly large bills.

People who live in buildings with district heating systems tend to be locked into long contracts with their suppliers. The term of my constituents’ contract is 25 years, following which it will be retendered. Those customers do not enjoy the same benefits as gas and electricity customers, for whom it is now easier to switch supplier to find the best deal. With no motivation for suppliers to compete, the monopoly becomes further entrenched, and it is residents who lose out.

There appears to be a lack of transparency and information about district heating systems. My constituents contend that they were not explicitly made aware until the day they moved in that their building was heated by such a system. They kindly provided me with a copy of their lease. Although numerous clauses provide legal support for the implementation of the system, at no point has there been a sufficient attempt to clarify what it actually is, how their homes are heated or the terms to which they are subject. The housing developer contends that it made efforts to tell residents as they moved in, but it seems to me that a more substantive intervention needs to be made, earlier and in good faith. At the very least, there was an omission, which needs to be corrected immediately; at most, there was a deliberate attempt to obfuscate. Of course, aligning the regulations with those for gas and electricity would resolve the problem.

Following pressure from consumer groups, the Heat Trust was set up in 2015. It remains the closest thing to a regulator the sector has. It aims to support common standards for the quality and customer service that heat suppliers provide their customers, and it gives customers access to the energy ombudsman for complaints. However, a closer look reveals a different picture. Membership of the Heat Trust is completely voluntary, meaning schemes that do not want to join are under no obligation to do so. Although the trust is managed by a not-for-profit organisation, its board is made up almost entirely of developers, suppliers and supporting services. There is no clear consumer representation. It appears that the Heat Trust is not fit for purpose. If the Government continue to rely on it, they will allow a system that systematically disadvantages residents to develop unchecked.

My constituent put it best when he described the “hidden” but very real consequences of the district heating monopoly on residents. For those lucky enough to own their home and have a good job, it is a significant financial inconvenience and may be a hindrance when they come to sell their home. However, for social housing tenants who receive universal credit, people holding down several part-time jobs or those who just run a tight household budget, it poses a much more fundamental problem, which threatens to destabilise lives. Such a monopoly, with its punitive impact on residents, represents the sort of injustice I thought we had done away with years ago.

That lack of fairness was recognised by the Competition and Markets Authority, which published a report on the industry in July. My hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook), who has eight of these systems in his constituency, had called for that, and I am grateful for his support. Among other things, the CMA recommended that the Government should introduce consumer protection for all heat network customers so they get the same protection as customers in the gas and electricity sectors; address low transparency so customers know they are on a heat network and there are clear agreements or contracts between customers and heat network operators; ensure that customers are aware what they are paying for, which is often unclear; and protect customers from poorly designed, built and operated heat networks by preventing developers from using cheaper options, which end up being paid for by the customer over the long term, to meet planning regulations.

I understand that the Minister and his Department are developing a heat networks market framework, which will form the Government’s response to the CMA review. I see no reason why the Government should continue to allow an industry that they hope will grow and support our green ambitions to develop with built-in disadvantages for consumers, and I see no reason why a double standard should continue to exist between residents using district heating systems and those who heat their homes with electricity and gas. I urge the Minister to adopt the recommendations in the CMA report, regulate these systems properly, require a culture of transparency, and give consumers the protections that have long been standard for other domestic heating fuels. Only then will we realise the full benefits that these systems can provide.

--- Later in debate ---

[Richard Harrington]

I thank my hon. Friend for his intervention. I agree with him. It seems to me that legislation is exactly what is needed. In my three years as a Minister, I have learned that it is easy to talk about legislation, but it is all in the detail. We have to make sure that it does exactly what my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter) mentioned, which is to protect consumers, but at the same time provide a basis for the industry to expand. As I said, for decarbonisation and for many things, the structure can be a really good one for consumers.

[Matthew Pennycook]

I agree with the Minister. At the moment, technology and confidence in it is being put at risk by the fact that consumers on many schemes—not all—are not getting a good deal. Would the Minister give us a sense of the timeline that the Department is thinking about for legislation and providing that extra protection? I have been campaigning for more than three years, ever since I was elected, and my constituents are not willing to wait another year or two years until that protection is brought in.

[Richard Harrington]

I fully accept the hon. Gentleman’s point. I wish I could wave a magic wand and say that it is going to be done the week after next. It is in the pipeline; I can assure him of that. It would be wrong of us to jump into something without giving it considerable thought. I fully accept his frustration and that of his constituents, and that is paramount. To him and the hon. Member for Lewisham East, that may sound like I am waffling and prevaricating, but it is just how it is. I would be very happy to meet them in the early part of next year to discuss progress, if that would help. The Department is not putting this on the back burner or anything like that. I give them that undertaking.

I believe that heat networks, if done properly, represent a significant opportunity to upgrade part of the whole UK energy infrastructure and seize the opportunity for British business that the technology presents. Heat accounts for about a third of UK carbon emissions. We have to cut our emissions to meet our carbon reduction targets. Heat and heat networks can play a critical role in this. We have made considerable progress generally through renewable heat incentives and energy company obligations, which have provided an incentive for heat networks to install lower carbon heat sources. The investment of £320 million in heat network projects, which is a mixture of grants and loans, is to be encouraged. Again, we have to ensure that where the Government are providing that support, adequate consumer protection measures are in place by requiring projects to demonstrate Heat Trust or equivalent standards when operational.

There are many heat network suppliers that provide strong consumer protections, such as Energetik, established by Enfield Council to provide better value, reliable and environmentally-friendly energy. I hope that the service charter that Energetik provides to its customers sets out clearly the minimum standards of service they can expect, what measures they provide to those vulnerable customers needing extra help and how they can be contacted should something go wrong.

We have worked closely with industry and consumer groups to support, through funding and guidance, the development of the UK-wide Heat Trust scheme, which is an independent consumer protection scheme designed specifically for customers. It draws on the terms of service offered to gas and electricity consumers. That said, I reiterate the comments made by the hon. Member for Greenwich and Woolwich. I agree with him that it is a voluntary scheme and does not protect all customers. I accept the assertion made by the hon. Member for Lewisham East that it does not protect all consumers, which I am sure is correct. However, I do not think it is all bad; I think it has been an improvement as well.

Where sites are registered with the Heat Trust, such as the Catford Green development in the constituency of the hon. Member for Lewisham East, they are not offered protections on pricing and contracts. Although we can learn some things from the work of the Heat Trust, that does not remove the need for further action. That is particularly the case as heat networks often operate as natural monopolies and customers can be contracted for very lengthy periods of up to 25 years, as the hon. Lady said. We want to ensure that heat network consumers are able to make informed choices about whether a property on a heat network is right for them, and to feel confident that if issues relating to their heating systems arise, they have recourse and there is a way to redress them.

The role of Government is to ensure that we are providing clean and secure energy at an affordable price to the consumer. We need a long-term market framework that places consumers at its heart, that still delivers sustained investment in the sector and maximises the potential economic and environmental benefits of heat networks. I hope that I have outlined a number of measures that the Government have already put in place and I hope that industry, consumer groups and all interested stakeholders will work closely with us as we develop our plans for further interventions.

Question put and agreed to.